Are you expecting to get a tax refund this year?
According to a March 2017 Investor Pulse Survey conducted on behalf of TD Ameritrade, 58% of participants expect to receive a tax refund this year.
The average refund amount is about $2,800, according to Lisa Greene-Lewis, certified public accountant and editor of the TurboTax blog. And, she says, the IRS issues nine out of 10 tax refunds in 21 days or less, which gives filers about three weeks to think about how to wisely spend that windfall.
How do you plan on spending your refund?
Perhaps you can relate to the Investor Pulse survey results indicating how participants view the purpose of their refund and how they plan on spending their check from Uncle Sam:
Still on the fence on what you will do with your refund? Here are a few ideas to consider:
1. Pay Down High-Interest Debt.
Are you carrying any high-interest revolving debt? Considering the average credit card interest rate is just over 15%, being able to pay down an outstanding balance can help save hundreds or even thousands of dollars. Plus, paying down debt can give you some peace of mind and let you focus on your savings goals.
2. Start or Replenish a Rainy-Day Fund.
Emergency funds are liquid accounts you can tap for quick access to cash when unforeseen big expenses arrive. A January survey by Bankrate.com showed that nearly 60% of Americans couldn’t pay an unexpected cost from their savings. Don’t let that be you. Some financial experts suggest having a cushion of three to six months of living expenses – i.e. mortgage/rent, utilities, groceries – is a good place to start to help cover living expenses in the event of an unexpected job loss, medical expense or other emergency.
Because you'll want this money to be available quickly should you need it, you may wish to stow it in a checking or savings account, money market fund, or short-term certificate of deposit (CD). CDs generally offer a higher yield than checking or savings accounts, but if you need to redeem a CD before maturity, an interest penalty might be imposed.
3. Pursue Your Short-Term Goals.
Have a look down the road, say one to five years or so. Any big expenses coming up? Are you thinking about that first home purchase? Or have you had your eye on a cute little cottage at the lake? Are the kitchen appliances and countertops on their last leg? Or maybe you have a milestone anniversary coming up and you’d like to celebrate it somewhere tropical. Now is a good time to make a down payment in a short term savings plan and put your tax refund to work towards making those goals a reality.
4. Make Your Future a Priority.
How are your retirement savings coming along? Perhaps it’s time to start an Individual Retirement Account (IRA). Already have one? Maybe you should consider making an early contribution for 2017. People under age 50 can save $5,500 a year, while those over age 50 can boost that to $6,500. The tax advantages of an IRA can help you keep more of your potential gains.
5. Feed the Mind.
Your tax refund could even be used to start a college fund for your kids or grandchildren. Investing in a 529 or other college education savings plan could offer some tax-free growth and tax efficiencies. Or consider investing in your own education. An advanced degree may spur career growth and boost income potential in years to come. Explore the benefits and choices available to help you or a loved one save for educational pursuits.
Put more towards your financial goals.
Consider using your tax refund to invest in your future. See all of the ways you can deposit your tax refund in your TD Ameritrade account. Log in to your account at tdameritrade.com and go to My Account > Deposits & Transfers.